The mood was ebullient in the California Pavilion at the 1893 Chicago exposition. The Mission-style building, rumored to have cost $100,000, was finally set to open. Scores of California boosters sporting grizzly bear-shaped badges clustered in the massive structure, eager to hear their governor, Henry Markham, extol the virtues of their state.
Examples of California’s bounty lay everywhere. The hall, lavishly decorated with flowers and flags, was landscaped with ancient date palms and other semi-tropical plants. A fountain sprayed red wine and mounds of raisins glistened in bowls. No display was more show stopping than the thirty-five foot tower built entirely of oranges. Laborers had worked for days to carefully layer the 18,873 pieces of fruit on top of one another, creating a bright orange column that sent a delicious fragrance floating through the air. The only other exhibit that rivaled the orange tower was a life-sized knight built entirely of prunes.
Millions of people from around the world were expected to visit the Exposition, and California had spared no expense to show them that it was a state rich in land, crops, and innovation. While officials were proud that the Gold Rush had generated hundreds of millions of dollars in ore, they wanted people to know that the state was also an agricultural powerhouse, an important trader with the Far East, and a good place to do business. As Gov. Markham snipped the ribbon that opened the pavilion, he boasted to the crowd that fruit production generated $3 million a year alone for the state. Wheat, grapes and wine brought in millions more, creating a robust economy. California’s population was growing rapidly, and its financial institutions were “in splendid condition,” he enthused.
As Markham delivered his sunny remarks, he had no idea that Los Angeles’ financial condition was rapidly disintegrating.
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Few could have predicted that Los Angeles was about to be plunged into a crisis. The weather in the waning days of spring had been glorious, hot and sunny without a cloud in the sky, typical of the region’s blessed climate. In 1876, just seventeen years earlier, Los Angeles had been a speck of an outpost on the edge of a continent, but now it boasted amenities as modern as any American city. Streets that were once notorious for their thick dust in the summer and heavy mud in the winter were now covered with asphalt. Wooden sidewalks had given way to stone, while electric lights illuminated the newly erected buildings in the downtown.
As the sun rose on June 20th, Los Angeles residents dressed for work and school, thinking perhaps only of the day ahead. Few were focused on the ongoing debate in faraway Washington D.C., as to whether to remain on the gold standard or tie America’s currency to silver. More likely, they were absorbed by news from the Chicago Exposition or by the debate about the advisability of widening First Street.
European investors, however, were so worried about the uncertainty of the U.S. monetary system that they steadily began withdrawing their gold. The exodus of capital sent stock prices plunging and suddenly all the financial machinations of the last twenty-five years—the massive expansion of railroads, the mismanagement of those companies, rampant stock manipulation, and monopolistic practices—came to an abrupt halt. By June, gold was scarce—and that meant everyone wanted some. Unstable banks began to fail at an alarming rate.
Los Angeles had always considered itself protected from the country’s financial vicissitudes. The last major upheaval in the U.S. economy had been twenty years earlier and its effects had taken two years to travel the three thousand miles west from New York. Even after two banks in nearby San Bernardino shut their doors, the Los Angeles Times reassured readers that the city’s banks were strong, routinely handling sixty-six percent more funds in 1893 than they had three years earlier. “Los Angeles has her financial house in good order and has no reason to fear contagion from the prevailing epidemic,” said a June 19th article. “To use an expressive phrase of the day, ‘Los Angeles is all right!’”
But the soothing words of the newspapers did no good. On the day after Gov. Markham gave his speech on the glories of California, Los Angeles investors developed an irrational, almost unexplainable, fear that their local banks were running out of gold coin. No one event triggered the panic, but all of a sudden hundreds of people became convinced they might lose their savings unless they immediately withdrew their money from the town’s vaults.
They rushed in frenzy toward the junction of Temple, Spring, and Main streets, home to most of the city’s financial institutions. They surged into the banks, desperate to hold their cash and make sure it was safe. The First National Bank had recently installed a curved mahogany counter that let tellers serve several customers at a time. What had seemed like a business innovation in good times was a detriment now, as the clerks doled out pile after pile of $20 gold pieces at a rate that threatened to deplete the bank’s money supply.
Nearby, so many worried depositors had swarmed the City Bank that its president posted a sign saying it would “temporarily suspend” paying depositors. An hour later, the University Bank drew curtains across its windows and posted a notice: “Bank closed. Depositors will be paid in full.”
By dawn the next day, scores of men in dark suits and bowler hats and women in mutton-sleeve dresses were lined up along Main Street, jostling one another as they tightly clutched their bank books and watched for signs that the banks would open. Within a few hours the crowd was so thick there was no room to walk on the sidewalk. Blue-suited police officers herded clusters of people against a bank building, where many peered anxiously through the arched windows to see if there was any activity inside. The clock on the wall of the nearby Nadeau Building tolled 10 o’clock, but the banks remained ominously closed.
It seemed like most of Los Angeles’ fifty thousand residents had come to the financial district either to withdraw their life savings or to gawk at desperate faces. “It was not the usual morning-go-to-work-crowd, but a strange race of people who seemed to have taken possession of the city,” one paper commented.
The doors of the City Bank and University Bank remained shut. When the president of the Los Angeles National Bank opened the bank’s iron gates, he was met by a cheer, but the joy was short-lived. Moments after he went back inside, a clerk slapped a sign on the front door announcing that those wishing to withdraw their money would only get a portion of what they were owed. The Farmers and Merchants Bank, the city’s oldest and biggest bank on the corner of Main and Commercial Streets, opened on time, but so many people crowded inside that the bank paid out $400,000 by noon, leaving just $43,000 in its vaults. By the early afternoon, customers had taken $3 million out of the city’s nineteen banks, forcing six to shut their doors as demand was outstripping supply.
Around 1 o’clock, just as it seemed the frenzy would only escalate, a rumor began to spread downtown that Isaias Hellman, one of the founders of the Farmers and Merchants Bank, was coming to Los Angeles. Hellman’s reputation in Los Angeles was legendary. He had gotten his start as a clerk in a dry goods store back in the days when Los Angeles was more Mexican pueblo that American city, and had risen to be California’s richest and most influential financier. He was now the president of the Nevada Bank in San Francisco and had investments in water, gas, and rail lines up and down the state. Most important, his reputation as a conservative banker, one who insisted on keeping large gold reserves on hand at all times, was impeccable. Old-timers still remembered how Hellman had smoothed over the last bank panic back in 1875.
“Hellman is in town, Hellman is in town!” people shouted as they streamed toward the San Fernando Depot, just a few blocks from downtown. As they reached the train station, they encountered a most unusual scene. Hellman, a short, austere-looking Jewish man with gold-rimmed glasses and a dark Van Dyke beard, stood dressed in a black frock coat and top hat by the tracks. A cadre of guards surrounded an armored rail car and watched carefully as workers heaved bags of gold into a Wells Fargo Express wagon.
The wagon laden with gold lurched forward and started its trip to the Farmers and Merchants Bank just a few blocks away. Isaias and his brother Herman, the bank’s vice-president, rode ahead, their grim faces reflecting the seriousness of their mission. Shortly after the bags were brought inside the bank, the two men started to heap mounds of gold coin on the mahogany counter, in plain sight of the worried customers. Hellman had brought more than $500,000 from his personal account in San Francisco (about $11 million in 2006 dollars) and all that coin soon became towers of gold stacked on the counter, a testament to the financial strength of the Farmers and Merchants Bank.
The sight of that shiny metal was a tonic. As the frantic crowd watched the golden towers grow, its panic subsided. Many customers redeposited the funds they had withdrawn in such frenzy. By the end of the day, Farmers and Merchants’ coffers were replenished; in fact deposits were up by one $100,000.
As the word of Hellman’s gesture spread, frightened customers at other banks calmed down. It soon became clear that the crunch was just temporary and that there really was enough money enough to go around. The panic ended.
Never before had the California economy depended so much on the actions of one man. It would not be the last time.